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TerraNova • India Compliance Markets

India CAFE Norms: II, III, and the OEM Credit Market

A seven-part guide to India's Corporate Average Fuel Efficiency norms — the CAFE-II baseline, the CAFE-III step-change from FY28, OEM-by-OEM cost exposure, and the new credit market modelled in full.

By Climate Decode • Updated

7 Articles • India's Largest OEM Compliance Driver
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Start Here•Market Snapshot•More in the Series•About Climate Decode•TerraNova

Start Here

Foundational • Part 1

The CAFE Primer

The CAFE rulebook from first principles — the four converging policy goals, the BEE/MoRTH split, the legal foundation in the Energy Conservation Act, and the 113 g/km CAFE-II baseline running through FY27.

By Climate Decode • • 10 min read

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What You'll Learn

▶ Why India built CAFE (4 policy goals)

▶ BEE designs, MoRTH enforces, ARAI tests

▶ The 113 g/km CAFE-II baseline

▶ EC Act 2022 penalty schedule

▶ Why enforcement has been soft so far

▶ Where India sits between US and EU

The Market in Three Numbers

Enforcement landed in March 2026. CAFE 2027 is drafted to take effect 1 April 2027 — among the steepest fuel-efficiency step-downs proposed in any major market.

₹2,728 Cr

CAFE-II fines on 9 OEMs · FY23-25 (TOI, Mar 2026)

3.0×

BEV super-credit per BEE Sept 2025 draft Table 3

₹8-15K Cr

Industry penalty exposure FY28-32 modelled

Sources: BEE Draft CAFE 2027 (25 Sept 2025) · ARAI AIS:175 (March 2026) · EC (Amendment) Act 2022 Section 26 · The Hindu (Feb 2026) · Times of India (March 2026) · Climate Decode CAFE Market Model (June 2026).

The Target Curve in One Picture

From the CAFE-II baseline (~113 g CO2/km on MIDC) to the BEE Sept 2025 draft FY32 c-value of 3.0139 L/100 km (~71.5 g CO2/km at the reference mass). CAFE 2027 stays on the MIDC basis until two separate notifications land: MoRTH triggers the WLTP cycle for CAFE purposes, and MoP+BEE issue the MIDC→WLTP conversion factor for CAFE 2027 targets. AIS:175 is published, but neither CAFE-specific notification has been issued.

CAFE 2027 · MIDC basis (WLTP TBD)708090100110120113.088.484.782.076.471.5FY27FY28FY29FY30FY31FY32g CO₂/km
CAFE-II baseline to CAFE 2027 target trajectory at b=1,170 kg, MIDC cycle. Derived from BEE Draft CAFE 2027 (25 Sept 2025) Table 1 c-values converted via the 23.7135 petrol-equivalent factor.

More in the Series

Six articles covering the step-change, the OEMs, the open issues, the costs, the credit market, and the platform.

Part 2 • The Step-Change

CAFE 2027 Mechanics: What the BEE Draft Actually Says

The September 2025 BEE draft step-change — the year-by-year target curve in L/100 km, the WLTP transition pathway, Table 3 super-credits, the new Carbon Neutrality Factor, and Section 7 pooling.

What's Covered

•  c values FY28-FY32: 3.7264 / 3.5737 / 3.4573 / 3.2224 / 3.0139 L/100 km

•  Super-credits per Table 3 (Sept 2025 draft): BEV 3.0×, SHEV 2.0×, Flex Fuel 1.5× — Apr 2026 draft cuts SHEV/FFV

•  AIS:175 published Mar 2026; CAFE WLTP transition factor TBD by MoP

By Climate Decode • June 2026 • 12 min read

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Part 3 • The OEM Landscape

Where the 15 PV OEMs Sit on the CAFE Curve

OEM-by-OEM positioning across BEV mix, curb weight, and the 5-year strategic role each will play in the new credit market.

What's Covered

•  Maruti at ~1.87M units (FY26) — lightest fleet, tightest mass-curve target

•  Tata at ~14% BEV (FY26) — structural credit seller

•  Premium Europeans (Skoda-VW, Mercedes, BMW) likely pool under Section 7 (max 3 OEMs)

By Climate Decode • June 2026 • 11 min read

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Part 4 • The Issues

The Five Open Issues That Will Define CAFE 2027

What is still contested between the Sept 2025 draft and the Feb / Apr 2026 circulated revisions — super-credit stability, mass-curve fairness, WLTP transition timing, pooling design, and enforcement intensity.

What's Covered

•  Feb & Apr 2026 circulated drafts: variable slope, small-car bonus removed, SHEV cut to 1.6× (The Hindu / Business Standard)

•  Mass-curve fairness debate — small-car vs SUV-heavy OEM lobby fault-line

•  ₹2,728 Cr CAFE-II penalty on 9 OEMs (Mar 2026) updates the enforcement picture

By Climate Decode • June 2026 • 10 min read

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Part 5 • The Cost

CAFE 2027 Cost Exposure — The Framework

How OEMs face the gap between fleet position and Standard, the levers that close it, and the PLI-Auto / PLI-ACC / PM E-DRIVE incentive stack that offsets capex.

What's Covered

•  Industry-wide ~₹8-15K Cr aggregate exposure bracket (Climate Decode model)

•  Penalty unit: L/100 km with single 0.2 threshold per EC Act Section 26

•  Per-BEV value stack: GST + state + PLI + CAFE super-credit components

By Climate Decode • June 2026 • 11 min read

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Part 6 • The Market

The 5-Year CAFE Credit Market — Framework

Four scenarios bracketing market value — from oversupplied base case (BEE floor pricing) to EU-style super-credit phase-out (clearing toward ceiling). Inputs, logic, and what each scenario depends on.

What's Covered

•  BEE direct sell-leg band: ₹2,500-4,500 per g-unit acts as soft floor / ceiling

•  Section 7 pooling cap (3 OEMs per pool) reshapes the demand side

•  Super-credit policy stability is the single most consequential variable

By Climate Decode • June 2026 • 13 min read

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Part 7 • The Platform

TerraNova for CAFE: The Compliance Workspace

TerraNova adapted end-to-end for India CAFE — onboarding, dashboard across CAFE-II and CAFE 2027, decarb-lever planning under Section 7 pooling, Compliance Manager projections, and the 5-year credit-market view.

What's Covered

•  6-step process — fleet capture to credit-market watch — under both regimes

•  MAC-ranked decarb-lever portfolio + scenario engine (Sept 2025 / Feb 2026 toggle)

•  BEE-format submission export and peer-OEM positioning

By Climate Decode • June 2026 • 9 min read

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TerraNova for CAFE

Climate Decode's compliance carbon platform adapted for India CAFE. End-to-end coverage: dashboard across CAFE-II and CAFE-III, decarb-lever planning under super-credits, Compliance Manager projections, and the 5-year OEM-to-OEM credit market view.

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